Miscellaneous technical amendments

2006 technical amendments to the Income Tax and Tax Administration Acts.

Rollover of exemption for investments in listed controlled foreign companies

Section EZ 29 of the Income Tax Act 2004

Section EZ 29 has been replaced to extend the exemption for investments in listed controlled foreign companies (CFCs) up to and including the 2010-11 tax year.

As with the previous section EZ 29, new section EZ 29 provides an exemption from the CFC rules in certain circumstances if the CFC is resident in a socalled grey list country and the company is listed on a recognised exchange in that grey list country. (The grey list comprises Australia, Canada, Germany, Japan, Norway, Spain, United Kingdom and United States.) The exemption applies if, by virtue of the grey list country's stock exchange listing rules, the New Zealand resident holding the CFC interest cannot obtain sufficient information to calculate income under the CFC rules. The exemption will apply if the stock exchange listing rules of the grey list country:

  • prevent the CFC from providing sufficient information for the person to calculate CFC income; or
  • provide that, if the CFC provides sufficient information for the person to calculate CFC income, the CFC is required to make a further disclosure of information that would be harmful to the CFC's commercial interests.

The previous section EZ 29 applied for the 2001-02 to 2005-06 tax years. New section EZ 29 applies for the 2006-07 to 2010-11 tax years.

Remedial amendments to PAYE

Section LD 1 of the Income Tax Act 2004

Three amendments have been made to section LD 1 of the Income Tax Act 2004 to amend drafting errors. The first amends section LD 1(2) to ensure that an employee receives credit for the amount of PAYE deducted by the employer rather than just the amount of PAYE paid to the Commissioner.

The second amends section LD 1(2A) to remove the reference to family assistance credits paid by the employer to their employee as the employer no longer pays family assistance.

The final amendment is to section LD 1(6)(b) to ensure that if too much PAYE is refunded to a shareholder employee the shareholder employee and the employer are jointly and severally liable for the difference between the amount refunded and the amount actually paid to the Commissioner by the employer. The current wording only recoups the difference between the amount refunded and the amount shown on the employer monthly schedule and therefore potentially benefits employers who underpay their PAYE to Inland Revenue.

These amendments apply from 3 April 2006, being the date of assent of the Act.

Companies required to maintain imputation credit accounts

Section ME 1 of the Income Tax Act 2004

A New Zealand-resident company must establish and maintain an imputation credit account (ICA) under section ME 1(1) of the Income Tax Act 2004 unless it is prohibited from doing so under any of the circumstances listed in section ME 1(2). Before an amendment made by the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004, section ME 1(2)(a) prohibited a company from having an ICA if it was "not resident in New Zealand". This provision was redundant and should have been repealed because only a New Zealandresident company can have an ICA. However, the 2004 amendment replaced section ME 1(2)(a) with a provision that prohibited a company from having an ICA if it was "resident in a country other than New Zealand".

The 2004 amendment had the unintended effect of prohibiting all dual-resident companies from having an ICA. This should not be the case. Only a dual-resident company of the type listed in section ME 1(2)(b) - that is, a company treated as not being a New Zealand resident for the purposes of a double tax agreement - should be prohibited. Section ME 1(2)(a) has therefore been repealed with application from the 2005-06 income year (the same application date as the 2004 amendment).

Definition of "beneficiary income"

Section OB 1 of the Income Tax Act 1994

The definition of "beneficiary income" in section OB 1 of the Income Tax Act 2004 uses the term "income year". The term "income year" is defined as the tax year (ending 31 March) or the non-standard accounting year approved by Inland Revenue. The definition of "beneficiary income" provides for distributions to be made to beneficiaries during the income year or within six months after the end of the income year. The effect of the reference to "income year" is that the six-month period expires on a date that is six months after the (approved) balance date of the trust. This is different from the Income Tax Act 1994 where the period ended six months after 31 March (30 September). The Rewrite Advisory Panel considered a submission that the 2004 Act contains an unintended change from the 1994 Act. The Panel agreed that such a change had occurred, but decided that the 2004 Act should remain unchanged and that a retrospective change to the 1994 Act should be made to bring it into line with the 2004 Act.

The definition of "beneficiary income" in section OB 1 of the Income Tax Act 1994 has therefore been amended so that it applies to non-standard accounting years as well as years ending on 31 March. The amendment applies from the 1995-96 income year. The amendment to the 1994 Act protects the position of all options used by taxpayers by giving them the later of six months post-balance date (for those who followed the 2004 Act position) or 30 September (for those early balance date taxpayers who followed the previous 1994 Act position).

Removal of "in writing" requirement for requests for penalty remissions

Sections 183ABA and 183H of the Tax Administration Act 1994

Section 183H of the Tax Administration Act no longer requires requests for remission of late filing penalties, non-electronic filing penalties, or late payment penalties to be in writing. Changes made to section 183ABA are consequential amendments.

The removal of the "in writing" requirement for requests applies from 4 April 2006.